Luxury Brands Prove to Be Resilient Despite Global Economic Fears

Luxury brands saw resilience at high-end U.S. department stores in the latest quarter, showing that wealthy shoppers are buying despite lingering concerns about the global economy.

Results issued on Tuesday by Michael Kors Holdings Ltd. and Estee Lauder Cos. Inc. were the latest signals of strength in high-end brands.

In general, U.S retail sales increased in July for the first time in four months as demand rose broadly for everything from cars to electronics, a sign that consumers could drive faster economic growth in the third quarter, the Commerce Department reported on Tuesday.

Kors' better-than-expected profit was due in part to bringing its boutiques into department stores. Kors has benefited from a consumer appetite for "affordable luxury" and its founder's prominence as a judge on the long-running TV fashion show "Project Runway."

"Michael Kors is considered a premium brand but it has mass appeal and mass affordability. And that's part of the secret: They have a luxury halo but also have affordable price points," said Milton Pedraza, chief executive of research and consulting firm Luxury Institute. "Department stores have the power to drive volume through measured discounting. They offer so much variety that consumers will never walk away from department stores."

Estee Lauder saw gains in every product category and geographic region, including high-single-digit growth in sales to North American department stores.

Not all department stores are seeing the same benefit.

Saks Inc.'s sales gains were more modest last quarter than at Nordstrom Inc. or Neiman Marcus.

Still, Saks maintained its forecast same-store sales to rise in the mid-single-digit range in the second half despite an "uncertain" economy. The upscale chain's gross margin fell less than expected in the latest quarter on less discounting.

Michael Kors, whose competitors include Coach Inc, ascribed the 66 percent jump in its wholesale business to its rollout of boutiques within a store, just as Coach is focusing more on its own stores. Coach's sales at U.S. department stores decreased moderately last quarter.

Outside of department stores, other companies are also going upscale. Gap Inc.'s Banana Republic on Tuesday announced that American designer Narciso Rodriguez would begin an advisory role this month with Banana Republic.

Rodriguez's own collections include items such as sweaters and pants priced at over $700 each, and $2,195 boots sold by Barneys, as well as $100 perfumes sold by Nordstrom.

TRAVEL BUMP

Luxury brands and retailers have shown resilience this summer despite a slowing of shopping by Europeans and bumpy stock markets.

Kors Chief Executive John Idol said sales to tourists had spiked in the last two months, while Estee Lauder said its sales were particularly strong in travel retail and emerging markets.

In another sign of luxury consumers' resilience, Kors also offered fewer markdowns. The company raised its full-year profit forecast and now expects to earn $1.32 to $1.34 per share, up from a prior view of $1.08 to $1.12.

Still, others have cautioned the economy remains rough. Ralph Lauren Corp. warned of a tough global economy, while Coach realized how much its outlet shoppers still want coupons.